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Answer :
Depreciation Expense for Four Years is Year 1: $65,100, Year 2: $65,100, Year 3: $65,100, Year 4: $65,100.
To determine the amount of depreciation expense for the four years ending December, we need to calculate the depreciation using three different methods: straight-line, units of production, and double-declining balance.
Purchase cost of packaging equipment: $283,800
Useful life: 4 years or 8,400 operating hours
Residual value: $23,400
Operating hours in each year: Year 1: 2,940, Year 2: 1,764, Year 3: 2,352, Year 4: 1,344
1. Straight-Line Depreciation Method:
The straight-line method allocates an equal amount of depreciation expense over the useful life of the asset.
Depreciation expense per year = (Purchase cost - Residual value) / Useful life
Depreciation expense per year = ($283,800 - $23,400) / 4
Depreciation expense per year = $260,400 / 4
Depreciation expense per year = $65,100
2. Units of Production Depreciation Method:
The units of production method allocates depreciation based on the actual usage or production level of the asset.
Depreciation expense per hour = (Purchase cost - Residual value) / Total expected operating hours
Depreciation expense per hour = ($283,800 - $23,400) / 8,400
Depreciation expense per hour = $260,400 / 8,400
Depreciation expense per hour = $31
Depreciation expense for each year = Depreciation expense per hour * Operating hours for the year
Year 1: $31 * 2,940 = $91,140
Year 2: $31 * 1,764 = $54,684
Year 3: $31 * 2,352 = $72,912
Year 4: $31 * 1,344 = $41,664
3. Double-Declining Balance Depreciation Method:
The double-declining balance depreciation method applies a higher depreciation rate to the asset's book value.
Depreciation rate = 2 / Useful life
Depreciation rate = 2 / 4 = 0.5 (50%)
Depreciation expense for each year = (Book value at the beginning of the year) * Depreciation rate
Year 1: ($283,800 - $0) * 0.5 = $141,900
Year 2: ($283,800 - $141,900) * 0.5 = $70,950
Year 3: ($283,800 - $212,850) * 0.5 = $35,475
Year 4: ($283,800 - $248,325) * 0.5 = $17,738
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